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The share market surged to a two-week high after the Reserve Bank softened its interest rates guidance after raising the cash rate target for a record tenth straight time and suggesting inflation has peaked.
Stocks popped and the dollar declined after the central bank amended its forward guidance to allow for a possible pause after one more rate hike. The bank said consumer price data implied inflation has topped out.
The S&P/ASX 200 jumped 36 points or 0.49 per cent to 7365.
Ten of eleven sectors advanced, led by energy and consumer stocks. The materials sector pared early weakness following the afternoon RBA announcement.
What moved the market
The market swung mid-afternoon from flat for the day to its highest since mid-February after the Reserve Bank signalled it was no longer committed to more than one more rate hike. The bank raised the cash rate target by 25 basis points to 3.6 per cent, as widely expected, but made a crucial change to its guidance.
“An initial glance at RBA’s statement suggests they are nearing the end of the tightening cycle, and perhaps one step closer to publicly discussing a pause,” Matt Simpson, senior market analyst at City Index, said.
“By removing ‘The Board expects that further increases in interest rates will be needed over the months ahead’ in exchange for ‘The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target’, it means they’re no longer certain that two or more hikes will be coming. And that means there may be one final hike to come, to take rates to 3.85%.”
The bank also suggested for the first time that inflation is in decline.
“The monthly CPI indicator suggests that inflation has peaked in Australia,” the bank said. It acknowledged global inflation remained “very high”, but it expects it to moderate from here, falling to 3 per cent in mid-2025.
The dollar declined 0.3 per cent to 67.11 US cents. The yield on ten-year Australian government bonds dived seven basis points to 3.71 per cent.
Today’s decision came as data showed consumer confidence remained near post-pandemic lows. The ANZ-Roy Morgan confidence index edged down 0.1 percentage points last week to 79.9.
A separate survey by Suicide Prevention Australia suggested almost half of all Australians were experiencing elevated distress from cost-of-living pressures. The body called for the bank to consider the impact of rate rises on people’s well-being, as well as their effect on the economy.
Winners’ circle
Consumer stocks added to earlier gains as traders bet interest rates were nearing a top. Retail conglomerate Wesfarmers firmed 1.56 per cent. Supermarkets Cole and Woolworths gained 0.91 and 1.08 per cent, respectively.
Super Retail Group advanced 2.52 per cent, Bega Cheese 2.05 per cent and a2 Milk 1.78 per cent.
The banks rallied for a third day. Higher rates are a two-edged sword for lenders, allowing for margin expansion but also creating the risk of a blowout in bad debts. ANZ gained 1.24 per cent, Westpac 1.27 per cent, NAB 0.78 per cent and CBA 0.3 per cent.
Santos edged up 2.66 per cent after passing a milestone for developing a natural gas project in Papua New Guinea. The firm said its joint venture had launched fully-integrated front-end engineering and design for the project, which is due to reach first production in late 2027/early 2028.
Other heavyweight gains included Macquarie Group +1.58 per cent, Woodside +1.1 per cent and CSL +0.81 per cent.
Funeral services provider InvoCare soared 34.97 per cent to $12.08 after US private equity firm TPG Global took advantage of recent share price weakness to launch an unsolicited takeover offer. TPG pitched a preliminary, non-binding indicative offer of $12.65 per InvoCare share. Shares in the Australian company closed at $8.95 yesterday after it reported a $1.8 million full-year loss.
Sayona Mining climbed 4.26 per cent to 24.75 cents after securing funding for its Canadian lithium projects by placing shares at a significant premium to its last closing price. PearTree Securities will pay $54.9 million for 174.5 million shares at a price of 31.5 cents per share.
Doghouse
Megaport plunged 14.98 per cent on news of the unexpected departure of its CEO. Vincent English tendered his resignation effective today. Chair and founder Bevan Slattery will act as interim chief executive until a replacement is appointed.
Most iron ore producers fell after China’s state planner sought advice on curbing recent price increases and the steel hub of Tangshan imposed environmental caps on production.
BHP declined 0.95 per cent. Rio Tinto shed 0.3 per cent after settling without admitting liability charges in the US over bribery allegations. The miner will pay a US$15 million civil penalty for alleged offences under the Foreign Corrupt Practices Act. The charges brought by the US Securities and Exchange Commission related to payments made by a consultant in 2011 relating to a project in Africa.
Fortescue Metals bucked the trend, rising 1.44 per cent as Chinese ore prices bounced 1.7 per cent this afternoon.
Overnight weakness in coal, lithium and industrial metals weighed. Liontown Resources dropped 3.78 per cent, Lake Resources 3.1 per cent, Coronado 2.11 per cent and Chalice Mining 1.79 per cent.
Yesterday’s best performer, BrainChip, gave back around half of its gain for the week, falling 7.56 per cent. Imugene shed 3.57 per cent.
Viva Energy slid 2.26 per cent as its shares traded without the right to the next dividend. Also trading ex-dividend were Northern Star -1.75 per cent and Sonic Healthcare -0.39 per cent.
Other markets
Asian markets advanced. The Asia Dow lifted 0.54 per cent, Hong Kong’s Hang Seng 1.2 per cent, Japan’s Nikkei 0.34 per cent and China’s Shanghai Composite 0.16 per cent.
S&P 500 futures improved nine points or 0.2 per cent.
Oil built on last night’s three-week high. Brent crude climbed 23 US cents or 0.27 per cent to US$86.41 a barrel.
Gold faded US$2 or 0.1 per cent to US$1,852.60 an ounce.
